Commerce Ministry for blanket ban on FDI in tobacco sector

November 17, 2016 — INDOLINK Consulting (es)

Source: The Hindu Business Line, Nov 16, 2016

New Delhi: In what could lead to a complete ban on foreign direct investment (FDI) in the tobacco sector, the Commerce Ministry’s Department of Industrial Policy & Promotion (DIPP) is finalising a Cabinet note on the matter.

The department has now proposed a ban on FDI through the trademark or licensing route.

“FDI in manufacturing of tobacco products is already banned. We are now proposing to extend the FDI ban beyond manufacturing to all activities, including licensing for franchise, trademark, brand name, management contracts and other technology collaboration,” a government official told BusinessLine.

With both Health and the Finance ministries on board, efforts are on by the DIPP to ensure that the matter is taken up by the Cabinet soon, the official said. If the Cabinet gives its go ahead, it could affect business of companies such as Godfrey Phillips India, a flagship company of the KK

Modi Group, which has a licensing arrangement with US-based Philip Morris.

“We want to plug all loopholes through which FDI could come into the manufacturing of tobacco products in the country,” the official added.

Some argue that the objective of discouraging tobacco consumption cannot be served by only a ban on FDI. “A decision also needs to be taken on phasing out existing investments in the sector made by domestic companies,” another official said.

A number of non-governmental organisations such as Crusade Against Tobacco have a different point of view. They claim that as long as powerful foreign tobacco companies have some interest in the Indian market they would keep using their influence to slow down tobacco control efforts.

Cigarette stocks on Wednesday fell up to 18 per cent. Shares of Godfrey Phillips India tanked 17.68 per cent, ITC by 2.94 per cent and NTC Industries went down by 0.65 per cent on BSE.